Fixing the Trade Deficit Problem

The combination of a slump in exports and a surge in imports has once again caused a deficit in Indonesia’s trade balance. The global trend of protectionism and a surge in the import consumer goods are in the spotlight.

KOMPAS/NINA SUSILO

Technicians assemble truck parts on Thursday (12/12/2019) at Isuzu’s Karawang plant at the Suryacipta Industrial Estate in East Karawang, West Java. Isuzu has started exporting its medium-sized truck model, Traga, to the Philippines and expects to expand its exports to 20 other countries over the next three years.

The trade deficit of US$1.11 billion recorded in November brings the total deficit over the first 11 months of 2019 to $3.105 billion. The huge deficit in November (the second largest after the $2.29 billion recorded in April) was triggered by a sharp decline in exports in almost all sectors (except agriculture) and a surge in imports, both of capital goods/raw materials and consumer goods.

The slowdown in the world economy, which has caused a decline in demand and a fall in commodity prices, as well as the growing trend of global protectionism, are the main triggers of the fall in exports.

As for imports, the main cause is the increase in imports of consumer goods, which jumped 16.28 percent year-on-year.

As previously, President Joko “Jokowi” Widodo raised his concern about the deficit in oil and gas, which remained unresolved. Indonesia’s dependence on fuel continues to drive up the oil and gas trade deficit. An increase was also recorded for food imports. The dependence on fuel and food imports is ironic for Indonesia as an agrarian country with abundant renewable energy sources.

Beyond the chronic oil and gas trade deficit, economists have long noted the continued decline in the non-oil and gas trade surplus, which contributed to the trade deficit of $8.57 billion in 2018, the worst in history.

In non-oil and gas trade, the drop in the surplus was not only triggered by a decline in exports but also by imports growing three times as fast as exports. This means the overall deficit was not only caused by the surge in oil and gas imports but also by the rise in non-oil and gas imports. We as a nation are increasingly addicted to imports.

Kompas/Priyombodo

Aerial photo of Tanjung Priok Port in North Jakarta managed by PT Pelindo II, as seen on Monday (16/12/2019). According to Statistics Indonesia (BPS), the value of Indonesia’s exports in November 2019 was US$14.01 billion, down 6.17 percent from exports in October 2019. If compared to November 2018 the exports dropped 5.67 percent.

The increase in imports also occurred because not all of the needs could be met at home. Such problems were partly due to structural factors and partly due to blunders in government policies. The issuance of facilities to ease imports, the simplification of import licenses and the increase of import quotas because of scarcity at home were among the main causes of the sharp increase in the trade deficit in 2018.

The pressure on our export products overseas and the influx of imported products to the country does not only reflect our worsening competitiveness but also indicates our incapability in trade negotiations and trade diplomacy.

Without reversing all these trends simultaneously, we can only expect a continued deterioration going forward. If that happens, the effect is very broad and can threaten the economy as a whole.

The issuance of policies that have harmed industry and hurt farmers should be stopped. Spurring the performance of the manufacturing industry, which produces products with high added value, should be realized not only in talks.

The effect is very broad and can threaten the economy as a whole.

The dependence of commodity exports must be ended immediately. It\'s time to work more seriously on the industrial sector that has been neglected.

Attention should be given not only to the export-oriented manufacturing industry but also to import substitution. Efforts to expand the export market of our industrial goods need to be continued. It also needs to speed up the conclusion of trade agreements with a number of important trading partners to expand export market access, including crude palm oil with the European Union and India.

The government’s decision to make economic diplomacy the priority of our foreign policy in 2020 is expected to spearhead efforts to overcome the chronic deficit in trade and the current account